PA Takes Steps to Mitigate Student Debt Bubble

Just this past summer, student loan debt hit $1.5 trillion nationally. On August 29, 2018, Forbes reported that students in Pennsylvania had the second highest student loan debt in the country at an average of $35,759 per student. Additionally, of the 100 colleges with the highest private loan borrowing, 85 are nonprofit colleges and 34 are in Pennsylvania.

Prompting the student debt crisis is a steady growth in college enrollments along with an increase in federal student loan limits. Only 59 percent of students graduate with a bachelor’s degree in six years. Furthermore, federal student loans do not require a credit check, so the maximum amount can be disbursed without any verification of a student’s ability to afford the loan at the time it goes into repayment.

To that end, student-consumers need better information upfront about what it will cost them to earn their degree. Loan servicers are often asked why they do not provide that information. The answer is that loan servicers are not connected to students until after they have borrowed and the money has been spent.

House Bill 2124, sponsored by Rep. Chris Quinn, seeks to remedy this problem by issuing each student an annual report on the amount that they have borrowed at the institution disbursing the loan. The legislation is modeled after a law that passed in Indiana in 2015, following a pilot program at the University of Indiana Bloomington which saw a decrease of $10 million in student borrowing. Indiana University continues to report that student borrowing continues to fall.

Other states that have enacted such legislation include:

California

Florida

Maryland

Nebraska

Oregon

Texas

Washington

Wisconsin

Specifically, House Bill 2124 requires institutions of higher education that receive federal education loan information or other loan information regarding a student enrolled at the institution to provide the student with an annual notice outlining their debt obligation. That notice includes the following:

An estimate of the total loans which are being disbursed by that institution of higher education;

A total payoff amount of loans that have been disbursed by the institution of higher education to the student if the loan were to go into repayment as of the date of the notice;

The number of years used in determining the total payoff; and

Information on how the student can access online repayment calculatorsThis information will be shared with the students via first-class mail, electronic mail or other communications protocol established by the institution of higher education. Costs may also be contained through the use of a third-party vendor.

This program will be administered by the Pennsylvania Department of Education, and shall begin with the academic year 2019-2020.

Currently, Temple University has already adopted a student debt letter program, and the University of Pittsburgh is in the process of implementing their own program.

House Bill 2124 was introduced in early March of this year. It was expeditiously approved by the House, and amended in the Senate to include language that specifically permitted the use of third-party vendors to fulfill the requirements. The bill was passed by the Senate on October 17, 2018 and later that night, the House concurred in Senate amendments. The bill is expected to be signed by the Governor.

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